WHAT IS THIS PROCESS?

The Sales Compensation Planning Process outlines an approach & guidelines for developing a Sales Compensation Plan for the whole Sales Force that:

q Supports your "go to market" Sales Strategy & Plan

q Incents the right behaviour from Sales People and Managers.

WHY IS THIS PROCESS IMPORTANT?

Many companies attribute their success in sales to their Sales Compensation Plan which should provide incentives to the sales force to do the difficult things to over achieve against their main $ Goals.

FOUNDATION STONES

The first key to successful Compensation Plan design is to have a Sales Strategy and Plan which defines:

q The Sales Goals, Annual and Quarterly

q Sales Headcount

q The Sales Coverage Models(s) you are deploying (eg: direct sales, external partners, inside sales, telesales) and:
- What you expect each of these channels to deliver
- How you expect them to work together, or not
- Major Activities and Milestones to be reached
- What is the job to be done by Sales.

PROCESS STEPS
So assuming the above Sales Strategy & Plan is done, the steps after that are:

1. Define the Income Levels to be made for each person attaining 100% of their $ Goals, ie: Target Income (to be competitive in view of the markets you play in)

2. Define the Salary Components (if any) in view of the need to give security versus high total income expectations.

You can now deduce the percentage commissions to be paid for attaining 100% of $ Goals.

Next you need to look at how to pay when multiple channels are involved in a sale,
eg1: If Inside Sales sells into an account owned by an Outside Account Manager
eg2: If an Outside Account Manager collides with a Partner.
eg3: Splits between 2 Salesmen selling into the same account, eg: An Account Manager responsible for a Major Account and another Sales Person selling to a division of the Account that is remote from its HQ.

Most times, it is in the interest of the company to make sure that everyone gets something, ie: the cost of paying a bit more commission for a sale is far less than losing the sale and dis-incenting one or more channels.

However, the real key is to have a defined market coverage model that points different channels at different parts of the market, and does not pay well if a channel sells outside its target market.

For example, low end computer products are probably best sold by a distributor to home computer owners, so a direct Account Manager should not be trying to sell low end products into low end accounts; best hand them to a distributor or other partner.

So hopefully you now have a Compensation Plan outline that defines how everyone gets paid.

On top of this, you might want to pay bonuses for milestones that would, again, come from the Sales Strategy & Plan.
eg1: Over $ Goal attainment might be paid at higher percentage rates and/or bonuses
eg2: You might want to place emphasis on early sales of new product
eg3: You might want to pay bonuses for key stages reached in a sales process for new products with long sales lead times.

Now it is probably a good idea to look at your old Compensation Plan (if youhave one) to see what worked well, and what did not, and adjust your plan so far.

The last thing you do is hang the framework of legal terms and conditions around the core of your Plan, eg: your right to change at 60(?) days notice; what happens when someone is fired or quits, who owns the contact and other account information, etc.